Fonterra may delay IPO amid volatility and soaring milk costs

Fonterra could delay the IPO of its Australian operations.

There is speculation that global dairy giant Fonterra may defer the initial public offering of its $1.2bn Australian unit until next year due to market volatility and soaring milk costs.

While delivering its half year result on Thursday, the company told the market that the average cost of milk had increased 30 per cent on the previous year.

And institutional investors in the Australian market have recently been wondering how a float will gain support in the current market for that reason.

Fonterra announced plans to potentially float its Australian unit last year.

It hired investment banks Jarden and UBS for the listing.

New Zealand-based Fonterra has also tapped PwC as an investigative accountant ahead of the listing.

Fonterra is also offloading its business in Chile.

The dairy co-operative, which is responsible for about 30 per cent of the world’s exports, generated $NZ74m ($69.3m) of annual earnings before interest and tax from its Australian unit last year.

The expectation has been that a float of the Australian arm would not happen until late this year.

But now some believe it could be even later than that.

While delivering its half-year result on Thursday, Fonterra said it was continuing to make progress on the sale of its Chilean business as well as the ownership review of its Australian business.

It said the Soprole dairy company in Chile and Fonterra Australia were performing well and its priority was to maximise the value of both businesses to the co-op.

It added that it would take its time to ensure the best outcomes from the processes.

It remained confident about delivering on its intention to return around $1bn of capital to its shareholders and unitholders by the 2024 financial year.

For the six months to January 31, revenue for the Australia business was $NZ784m.

This was down from $NZ829m in the previous corresponding period.

The result was impacted by lower milk collections but higher product prices.

Fonterra in Australia sells mainly cheese and butter.

Its consumer food services includes brands such as Bega Cheese, for which it owns the licence to the trademark for some products, Perfect Italiano and Western Star. It also is involved in the ingredients business.

In Australia, Fonterra collects about 20 per cent of the total milk pool from farmers and supplies to manufacturers such as Bega.

It collected 899 million litres of milk in Australia for the six months to January.

It posted a $NZ371m net profit for the six months to January 31, up 9 per cent on the previous corresponding period.

Fonterra sold assets in 2018, including its New Zealand ice cream brand Tip Top.